TAX frauds in Pakistan are common. There are numerous loopholes in the system that enable the dishonest to swindle the government. This is in the FBR’s knowledge but nobody cares. After all, FBR officials have a vested interest in preserving the flawed system. The rampant fraud in sales tax refunds and input tax adjustments, for example, is not new. It is as old as the law allowing input tax adjustments and sales tax refunds on imports for exports. Some time ago, the authorities had proudly claimed to have removed the lacunae used for bogus claims. But the practice continues as pointed out in a story in Saturday’s issue of this paper. According to the report, more than Rs63bn were released in bogus refunds and input tax adjustments in the first four months of the current fiscal against fake — often called flying — invoices across the country. In many cases, the refunds were disbursed on a fast track in spite of ‘red alerts’ from the intelligence wing of the FBR.

A few years ago, we had ‘factories’ in Faisalabad selling flying invoices to help fraudsters. Now the swindlers have become more sophisticated. They set up fake companies to file ‘legal’ tax refund claims. As the Securities and Exchange Commission of Pakistan does not physically verify the addresses given in the application for registration or check the credentials of the sponsors of such companies, it is easy for the cheaters to get away with the fraud. Should the SECP examine its record, it would find thousands of such companies that do not exist at all. Since these frauds cannot be committed without the connivance of tax officials, the FBR needs to clean up its own act as a first step to preventing them in future. The guilty should be punished and made an example of. That should be followed by restructuring of the tax regime in such a way that all loopholes are actually plugged. This will not be easy because of the resistance from within the department. Yet it is possible if the authorities have the will to stop tax frauds in future.